India's poor broadband: A bane for e-commerce

As Internet usage is directly related to rise of e-commerce, a comparison between China and India shows that India in far behind China, which is estimated to touch $450 billion this year from over $300 billion last year.

Providing access to faster broadband speeds and easing of payment norms in the country can play an important role in further boosting growth in the burgeoning e-commerce sector in India, according to a report released by Internet & Mobile Association of India (IAMAI), which states that it can help improve customer experience and provide a fillip to the $3 billion Indian e-commerce sector.

While the internet penetration in Metro’s is quite respectable at 23 percent, all other cities in India have close to 10 percent penetration or lower. And overall, in rural areas, internet penetration is abysmally low. Considering that majority of Indian population still resides in rural areas, on a global level, India has one of the poorest internet penetration in the world.

As Internet usage is directly related to rise of e-commerce, a comparison between China and India shows that India in far behind China, which is estimated to touch $450 billion this year from over $300 billion last year

IAMAI Chairman and Google India Head Rajan Anandan said the massive growth has come at the back of strong growth in Internet user base. ”In 2013, China had 618 million PC and 500 million Internet users. By 2016, this is estimated to grow to 790 million for PC and 690 million mobile Internet users. Compared to that, India has 243 million Internet users,” he comments.

A major chunk of this growth in China is happening on smartphones and tablets, he said. ”We see similar trends in India in terms of smartphone growth and increasing Internet penetration. Though the numbers are small, but the opportunity ahead is huge,” Anandan said.

In terms of internet usage Mumbai is the number one city when it comes to number of Internet users in India. Delhi comes in second place, while surprisingly Kolkata has more internet users than the silicon valley of India, Bangalore. Kolkata has 6.27 million users compared to Bangalore’s 5.99 million. Kolkata has jumped two places compared to last year from fifth to third just behind Delhi.

While Mumbai has the highest number of internet users, Delhi registered maximum growth as compared to last year. They had 8.1 million in 2013 compared to 12.15 million in 2014, a growth over 50 percent compared to last year. Mumbai grew at 37 percent Y-O-Y followed by Bangalore at 36 percent Y-O-Y. Pune and Hyderabad registered a growth of 33 percent each.

Overall, the top 4 metros (Mumbai, Delhi, Kolkata and Chennai) have a 23 percent penetration of Internet Users in India. The other 4 Metros (Bangalore, Hyderabad, Ahmedabad and Pune) have 11 percent penetration of Internet Users, with Bangalore registering the highest growth.

Among the smaller cities (who have population of more than 10 lakh people), Surat registered maximum number of users with 2.97 million users followed by Jaipur and Lucknow.

The reasons for poor internet penetration are many, but the two most important factors remain to be poor broadband connectivity and high internet prices. In fact, due to rise in mobile phones, India has more or less skipped the broadband generation and moved to mobile internet, which again is quite expensive to most people in India.

Likewise the country’s top eCommerce hubs are Delhi, followed by Mumbai, Jaipur, Bengaluru and Chennai, according to an e-bay data.

Despite low broadband penetration, Indian e-commerce market, which is currently pegged at $13 billion is all set to cross $90 billion by 2019, an increase of 700% as per a research by eTailing India, and the most interesting aspect in the incredible growth story is that, mobile will hold the key to this growth.

However, unless the government looks at maximizing broadband connectivity in the country to become a more competitive nation in the digital space, these growth figures will remain a distant dream, as Anandan notes, “The Indian government should make the broadband happen in the country.”

The report also highlights that simplifying the payment procedure can further play an important role in further increasing online transactions in India, which can provide a major boost to the e-commerce industry in the country.

If leveraged in a strategic way, the Internet has the potential to contribute $100 billion to India’s Gross Domestic Product (GDP) by 2015, according to a report by global consulting firm McKinsey. “Unless the Internet is equally transmitted to smaller cities and rural areas, India’s GDP from the Internet economy will not see a significant growth,” says Anu Madgavkar, India head of McKinsey’s economics research. She too recommends telecom operators to introduce high speed internet network at a highly affordable price and also states that government must extend the national broadband network.